Month: December 2011

BBD.B, Bombardier

Hamilton

bbd.b

Bombardier has a “compelling valuation” according to an RBCDS analyst. There are now 20 buys against 2 sells, quite a turnaround in sentiment that had been unreservedly negative, almost comparable to RIM. By the way, this stock now has a capitalization of around 6 bln, well below RIM’s. It yields almost 3%, trades at a p/e of 7 and has lost half its value in the last year, and almost all of it over the past 10 years.

The company recently won another 700 mln. order from Stuttgart’s transit system and is virtually the only company left making trains. Same thing with the medium sized jets even if they share that position with the Brazilians. These things are simple not going to go out of fashion any time soon. Anyone who has seen John Candy’s movie “Planes, Trains & Automobiles” will know how important and durable these things are, Bombardier covers 2/3 of them.

The EW patterns are not clear. A large A-B-C correction from $26 to $2 could have been it. If so the stock is in a new bull market since then but the patterns are not clear. What is clear is that the stock is pretty close to the 20+-year line that connects all bottoms. Perhaps a good time to buy? See also previous entries for this stock!

CF, Canaccord Financial.

Hamilton

cf 2011

For value investors the above metrics are irresistible. After all where can you get a stock that pays a dividend of 5.5%, has a p/e below 7 and has a lot of value as it is already down almost 60% this year and some 75% since the highs of $26+  From an EW perspective this is a very dangerous stock. The A-B-C rebound since the lows Dec. of 08, exactly into the Fibo ratio of 61.8, almost guarantees a new low below the levels of 08.

MS Morgan Stanley, SI Siemens and the TSX

Hamilton

MS according to the charts could be forming a triangle. Here is an update;

ms dec 22 2011

We are following this with a little more interest than usual, having missed the opportunity to buy at $12. At the risk of boring the reader, I have done a little math just to test the validity of this being a triangle. Wave c relates to a by a factor of 0.652 and d to b by a factor of 0.748. Not ideal but close enough not to reject the notion of a triangle. Wave e now may not exceed c at $17.50, but also does not have to be contained by the triangle’s boundaries. The ideal level for e would be at $16.89. All this is mostly academic as you should not trade on it. But if it does all this, and it is a big if, then it will be a screaming buy at just under $10 where it would hit the upper channel line as support. $10 is also what was paid for Bear Sterns by JP Morgan. It is unthinkable that it would not pay that sum again for it’s own, far more distinguished, offspring now that it has been orphaned by it’s other parent, Glass-Steagall.

There are many other stocks that have a triangle forming, at least the possibility for one, Siemens (SI) and the TSX are possible examples;

si dec 22 2011tsx dec 22 2011

Both are presently in their respective e-waves, and whether or not they are actually forming triangles is perhaps less important than the fact that they have been going sideways for 5 months. Consolidation patterns are invariable resolved in the same direction in which you entered them, in this case down.

MCD update.

Hamilton

We thought it was a sell at about $94. Not so. Again it looks like a sell, even more so now;

mcd dec 2011mcd dec 2011 log

Here is MCD in both a arithmetic and a semi-log scale. If you concentrate on the arithmetic one you get the feeling that you are at nose-bleed heights and want to get off as soon as possible. The take from the semi-log chart is that you might just want to stick around un till you hit the upper trend-line. In both cases, superficially at least, clearly discernable 5-wave sequences are visible, either for the 5th wave or for the entire structure. In more detail we get:

mcd dec 2011 bigcharts

Very compelling reasons to sell now are’

a. The Mnt. Everest phenomenon appears to be at work here. The stock is pulled up to reach that $100 magic target. In the process it is creating a considerable “throw-over” at two different degrees!

b. Even if it is not patently clear where it begins (and ends) there is nevertheless a triangle wave 4 for wave 5 and perhaps another one for wave 5 of 5, which is itself sub-dividable in 5 waves.

c. The distance travelled in wave 5, from $45 to $100, is now equal to that travelled in waves 1 through 3, $10 to $65, a common relationship.

In my humble opinion any prudent investor should say “thank you” and move on. An aggressive investor should consider shorting this stock, or buying put options;

mcd options

Just an example. You can buy a put option valid for more than a full year at a strike of $87.50 for a premium of $5. If the stock were to drop at the same rate that it went up (over the year) it would be somewhere in the order of $72, consequently you would be “in-the-money” by about $15 and assume a time value of zero you would have a gain of 300%. Socks always drop faster than they rise so this could happen a lot earlier and there would still be time value. This is just an example as theoretically all options are priced according to the risk and one should be indifferent to which one to chose.

By the way the p/e is close to 20, fairly rich compared to a market average of 12 or so. This is , of course, a growth stock?